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Tax cuts designed to spur state economy

There will be a flurry of activity in Columbus this second week of December as legislators wrap up business for the calendar year. Bills that will save money for military pensioners and increase job training opportunities are likely to pass.

Senators return to Columbus for two voting sessions this week before taking a break for Christmas and New Year’s. It is unlikely any standing committees will meet after Wednesday. Offices will remain open through the end of the year, and I will be making at least one trip a week to Columbus during the holiday break.

These last two session days could bring good news to military retirees. There is a good chance a plan to exempt military pensions from Ohio income tax will be passed and sent to the governor. If passed in its present form, it means those on military pensions will get to keep $25 million they had been paying to the state in taxes. Looked at another way, the bill would reduce state revenues by about $25 million a year.

That concern has caught the attention of administration officials who are already forecasting reduced revenues for the next few years. The primary reason for the reduction in revenues is the 21 percent income tax reduction approved by legislators several years ago under the Taft administration.

Income tax rates are being reduced 4.2 percent a year for five years under a plan approved by legislators. I voted for that tax cut. The next reduction effective Jan. 1, 2008 will be the fourth cut of 4.2 percent. The last cut will take effect in January, 2009.

Estimates are each 4.2 percent cut reduces state revenues by $350 million. This is money individuals can use as they see fit, but it should provide additional economic benefits as residents spend that tax savings.

These income tax reductions are not good news for programs that depend on state money for funding. It is good news for individuals who believe the most effective way to control government spending is not to send money to Columbus to begin with.

One of the theories behind the tax cuts is that individuals know better than state government how they want to spend their money. Opponents of the tax cut point to them as one reason many programs that depend heavily on taxpayers lack adequate funding.

Another measure that is likely to see action would extend the job training tax credit to companies by an additional year. The concept of this tax against business profits is to encourage companies to hire and train more employees. If extended, this tax credit will result in lost revenue of up to $20 million a year according to the bill sponsor.

In his sponsor testimony, Sen. John Carey (R-Wellston) said his bill would extend the program through tax year 2008 at a cost of up to $20 million to provide more skilled workers and continue to attract business investment.

This is the season of giving, and, if enacted, both these measures will give tax breaks that are designed to help stimulate Ohio’s economy.

Tom Niehaus is a member of the Ohio Senate and represents the 14th District.